The annual United Nations General Assembly session brings frustrating traffic to Midtown Manhattan but also provides ample time to think. While sitting in traffic, I wondered what the rate of return is for these meetings. Thousands of us in gridlock for hours while our work productivity sinks. Does the U.N. accomplish enough to offset the loss? I suspect we know the answer.
The traffic gridlock is like last week’s market, not going anywhere. I would argue that the S&P 500® Index (SPX) should have gone somewhere last week and continued much higher. Just think about all of the favorable market conditions that occurred during the week:
- Apple (AAPL), a Nasdaq and SPX heavyweight, sold over 10 million iPhone 6 and iPhone 6 Plus – well above expectations
- The FOMC left its statement alone: the “considerable time” language for low rates stayed
- Alibaba’s historic and highly successful IPO
- Scotland’s “No!” vote
I learned many years ago that good market news met with bad price action should be of concern to investors. To me, last week’s news should have been not just “good” but “very good” for capital markets. The result instead: lousy price action and a quick retreat for the SPX from early Friday morning’s all-time high of 2019.26 to a close yesterday of 1982.77 (Figure 1). So, yes, I am concerned that the overall market is as vulnerable to a deeper correction as it has been in quite some time.
Figure 1: S&P 500 Index (SPX) September 2013 to September 2014
For traders, this means taking some protective action for the near term. For investors, it means being alert and aware. Watch closely that a deeper sell-off doesn’t evolve. I had expected a correction this summer. Could it be that it unfolded on the last day? That is a difficult question that will only be answered in hindsight. In the meantime, raise your attention level, be alert, talk with your advisor, ask questions, and, when in doubt, neutralize the risk. Make sure you and your advisor have a plan in place should the current decline deepen. Whatever your intention – adding to risk on a correction or neutralizing the risk – now is the time to define it.
Back to the Midtown traffic, I suspect it will not be getting any better so I’ve traced out a plan for my next venture to the city – it’s called the subway!